The unemployment rate has dropped below its adaptation level—and our “animal spirits” metric has become positive—for the first time since November 2007.
Let the secular exhilaration begin!
The green line is the Michigan survey measure of consumer sentiment. The forecast of the unemployment rate is judgmental and follows the pattern of the early ‘Seventies approximately.
Confidence has a momentum of its own, visual examination of the series suggests. The unemployment rate rarely crosses quickly back above its moving average once it has crossed below. It happened a few times in the 'Fifties and ‘Sixties but did not signal the imminent start of a recession. We may expect positive economic momentum for several quarters in the U.S.
If we track the early ‘Seventies episode, when the Michigan series was in the dumps as it is now but our “animal spirits” metric went positive, we can expect about a year of positive economic growth before the next collapse of confidence.
Why Shiller and Akerlof didn’t cite the important 1996 paper in the Journal of Economic Psychology on “animal spirits” published by an obscure professor at a small, non-snob school somewhere in fly-over land, is simply evidence of how long our neo-feudal class system has been forming. Denial is so easy when the little people are so far removed of our social sphere of reference.